Creating a stronger European financial supervision for the Capital Markets Union

The proposals of the European Commission on 20 September 2017 aimed to reform the EU's supervisory architecture. The proposals pave the way for further financial integration and a full Capital Markets Union, to promote jobs, growth and investments in Europe and to strengthen the Economic and Monetary Union.

Once adopted, the proposals will improve the mandates, governance and funding of the European Supervisory Authorities (European Banking Authority, European Securities and Markets Authority, European Insurance and Occupational Pensions Authority).

To ensure a uniform application of EU rules and promote a true Capital Markets Union, the proposals also entrust the European Securities and Markets Authority with direct supervisory power in specific financial sectors. In addition, the Commission is proposing targeted changes to the composition and organization of the European Systematic Risk Board.

The reforms will promote further capital market integration following the UK's departure from the EU. They will also introduce changes to the supervisory relations with non-EU countries so as to ensure proper management of all financial-sector risks.

Key features of the proposals include the following:

Stronger coordination of supervision

The European Supervisory Authorities will set EU-wide supervisory priorities, check the consistency of the work programmes of individual supervisory authorities with EU priorities and review their implementation. The European Insurance and Occupational Pensions Authority will have a stronger role in promoting convergence in the validation of the internal models that some large insurance companies use to calculate requirements on solvency capital. Also, the functioning of the European Systematic Risk Board will be made more efficient in order to strengthen its oversight of risks for the financial system as a whole.

Extended direct capital markets supervision by European Securities and Markets Authority

The Commission proposed to make European Securities and Markets Authority (ESMA) the direct supervisor over certain sectors of capital markets across the EU.

ESMA will authorize and supervise the EU's critical benchmarks and endorse non-EU benchmarks for use in the EU.

ESMA will be in charge of approving certain EU prospectuses and all non-EU prospectuses drawn up under EU rules.

ESMA will authorize and supervise certain investment funds with an EU label with the aim of creating a genuine single market for these funds (European Venture Capital Funds, European Social Entrepreneurship Funds and European Long-Term Investment Funds).

ESMA will have a greater role in coordinating market abuse investigations. It will have the right to act where certain orders, transactions or behaviours give rise to well-founded suspicion and have cross-border implications or effects for the integrity of financial markets or financial stability in the EU.

Improved governance and funding of the European Supervisory Authorities

The European Supervisory Authorities will take decisions more independently from national interests. Under the new governance system, newly-created Executive Boards with permanent members will lead to quicker, more streamlined and EU-oriented decisions. The reform will also make the funding of the European Supervisory Authorities independent from national supervisors. This will guarantee that the ESAs have improved autonomy and independence.

Promoting sustainable finance and FinTech

The European Supervisory Authorities will promote sustainable finance while ensuring financial stability. They will take account of environmental, social and governance-related factors and risks in all the tasks they perform.

The European Supervisory Authorities will prioritize FinTech and will coordinate national initiatives to promote innovation and strengthen cybersecurity. 

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